Blog on the Run: Reloaded

Thursday, September 10, 2009 9:00 pm

Quote of the day, Schools of Economic Thought edition, with accompanying rumination

“The Chicago School was bought and paid for by the economic elite. It was created and nurtured for the purpose of looting the world and getting the rest of us to accept it. Nobody should make the mistake of thinking that these folks have been chastised by events in the real world. They have not been paid to be humble.”

— commenter dcnataro at Hullabaloo

* * *

The fact that former Fed Chairman Alan Greenspan told Congress about a year ago, in the middle of an ongoing financial collapse, that his entire world view had been fatally flawed was a news story for about one day. I did not understand that.*

I thought it should have been a much bigger, longer-lasting story because of the questions it raised and the implications that flowed inevitably from it. Greenspan’s admission undermined an entire way of thinking around which, during the past 30  years or so, has emerged the closest thing to consensus that America can produce these days on a complicated topic.

That consensus is not only that free markets are good but also that the markets we have actually are free. That consensus is not only that people are rational but that they also consistently act rationally. That consensus is that those concepts lead more or less inevitably to general prosperity and that our differences are merely at the margins.

Well, we’ve learned a few things in the past year or three.

For one thing, we’ve learned that free markets lead inevitably, if not quickly, toward monopoly unless acted upon by outside forces.

For another, we’ve learned that in many, if not most, areas, we don’t have anything close to a perfectly free market. For example, in most states, one or two health insurers hold the overwhelming majority of people in those respective states and that there are, for all intents and purposes, monopolies in many states (including N.C., where Blue Cross Blue Shield predominates) in the market for health insurance for individuals.

We’ve learned that all manner of  insider trading goes on on Wall Street every day with no legal, financial or practical repercussions and that, more generally, retail investing is a rigged game.

We’ve learned that people — consumers and business people alike — do not act rationally at all and in fact frequently act in ways diametrically contrary to their own best interests. In a system based on the presumption that everyone’s acting in his own best interest will result in the greatest good for society as a whole, this fact ought to be raising many more troubling questions than it does.

And we’ve learned that the true financial elite are more loyal to one another than they are to their employees, their stockholders or — particularly in the case of certain current and former Goldman Sachs employees — their countries. Worse, they actually believe that they’ll be able to avoid the consequences when, not if, things get dramatically worse worldwide, so they make ever more irrational decisions that are making bad things worse at ever-increasing speed.

I honestly don’t want to see torches and pitchforks. I honestly don’t want to see the bodies of investment bankers dangling from lampposts. But I fear we’re closer to that than we think, and a lot closer to it than the investment bankers think.

Money can protect you from a lot of things. But it can’t protect you from everything. And in some circumstances that aren’t as unlikely as I’d prefer, it can’t protect you at all.

Friday, June 26, 2009 8:05 pm

Selling bull manure as Belgian chocolate

See, the investment bankers’ problem isn’t that they actually blew the economy all to hell, ruined a ton of people’s retirement or college savings and threw millions out of work. No, their problem is that there has been “populist overreaction”:

Wall Street’s largest trade group has started a campaign to counter the “populist” backlash against bankers, enlisting two former aides to Treasury Secretary Henry Paulson to spearhead the effort.

In memos of confidential meetings with top financial executives, the Securities Industry and Financial Markets Association said it began this month the “execution phase” of the operation, which pledges to “embrace change” and accountability. The plan targets policy makers and the media in New York, London, Washington and Brussels and calls for a “city-by-city, grass roots” approach.

The securities industry “must be perceived as part of the solution, which will allow it to better defend against populist overreaction,” the documents, prepared for a June 17 meeting of SIFMA’s board, said.

The board meeting minutes and staff-written papers, obtained by Bloomberg News, outline the program crafted by polling, lobbying and public relations companies paid at least $85,000 a month. The memos provide a glimpse, in often candid language, into how Wall Street is grappling with its pariah status.

“It is imperative that in this historic period of reform, the industry be recognized as playing a positive role in seeking change and providing solutions to the problems we face,” one of the documents said. “There is currently widespread skepticism about the industry’s commitment to this needed change.”

“There is currently widespread skepticism.” Gee. I can’t imagine why that might be.

But wait! There’s more! (With these cheesemunches, there’s always more.) The guy who’s going to be leading this effort? Doesn’t exactly have a record of competence where the public’s welfare is concerned: “I’m not sure anyone in history has ever helped destroy a brand more thoroughly …”

Those smiles you see belong to lawyers who now understand that banker jokes are going to supersede lawyer jokes for a long time to come.

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